The New University

A tough market is reshaping colleges

On an autumn afternoon on the manicured grounds of the red-brick University of Florida at Gainesville, students stroll under palms and moss-draped oaks. It's a classic collegiate tableau--and completely at odds with the radical vision of the man who presides over the campus from a modest second-story office. It's not that John V. Lombardi wants to destroy what he sees. Quite simply, he has to.

As president of the huge state institution, Lombardi contends with a legislature that won't let him raise tuition but has cut university appropriations by 15% since 1991. In response, "we have taken the great leap forward and said: `Let's pretend we're a corporation,"' Lombardi says. Defying traditional academic notions, departments now vie openly for resources. English professors must demonstrate, in essence, that Chaucer pays the bills using funds as effectively as engineering or business classes. Departments that meet quality and productivity criteria win shares of $2 million in discretionary funding.

This isn't a universally popular strategy. Some professors and administrators fear the effects of the new strictures on academic quality. Many hope it is just a president's passing fancy. "Things like this come and go all the time," says John Kraft, dean of the University of Florida's College of Business Administration. Lombardi understands the dissension and skepticism. At institutions like his, he says, "everyone assumes that we'll just keep churning the paper, and it will be business as usual."

It isn't--at Florida or at other colleges and universities across the nation. Behind ivied walls and on leafy quadrangles, administrators and professors acknowledge this new reality. Higher education is changing profoundly, retreating from the ideals of liberal arts and the leading-edge research it always has cherished. Instead, it is behaving more like the $250 billion business it has become.

DISCIPLINE. Universities are rethinking the big lecture halls, faculty tenure, discrete academic departments, and other features that have defined traditional institutions for a century. They are designing curriculums more relevant to employers, communities, and students. Schools are pursuing fiscal discipline, forcing accountability on organizations that for decades have expanded as they pleased. And they're wiring the ivory towers, creating with technology more efficient mediums of instruction.

Why this transformation, in a system still regarded as unmatched in the world? After all, 62% of Americans today attend college just after high school, testament to the American ideal of a highly educated populace. U.S. universities, moreover, still produce research that extends the bounds of knowledge and feeds innovation in industry.

Over the past two decades, though, higher education has failed spectacularly to live within its means. From 1980 to 1994, the most recent year for which Education Dept. data are available, instructional costs per full-time student at private universities increased 48% in real terms; public universities upped research expenses by 35%. In the same time, though, states reduced real, per-student funding to public universities by 22%. In the private sector, students from well-heeled families who could pay full tuition increasingly fled to smaller colleges, taking revenue with them.

That has produced an explosion in charges as institutions have sought to close the funding gap. Average annual tuition, room, and board at state universities, after inflation, has jumped 33% since 1976, to $6,349, according to the Education Dept.; at Ivy League and other elite schools, the going rate is $32,000. Schools themselves have eaten some of that increase in the form of "discounting," or student aid, making up in part for a decline in federal grants. But students and their families have borne the brunt: Since 1975, college costs have soared to 20.5% of median household income, up from 14%. "We are pricing ourselves out of Americans' ability to pay," says Thomas H. Kean, Drew University president and a former New Jersey governor.

The RAND Corp.'s Council for Aid to Education estimates that mounting college costs, combined with declining real wages--especially among poor families--and growing immigration rates, will create a large class for whom college is utterly out of reach. Given current spending trends and continued pressure on government aid, predicts the council, colleges and universities will see "a catastrophic shortfall in funding"--a $38 billion gap in 2015 in what they require to meet expected student demand. To pay the bills, schools will have to raise tuition or reduce aid--and either action will shut people out.

Increasingly, then, institutions find themselves grappling with a basic tension between quality and access. As resources grow scarcer, how do they sustain high-level teaching and research at an affordable price? The dilemma cuts to the heart of today's knowledge economy, where more than two-thirds of new jobs require some higher education. Continued productivity gains and economic growth depend on keeping such institutions both accessible and pertinent. "If we're not matching up [students] and educational opportunities well, we're going to lose some productive capacity," says Michael S. McPherson, president of Macalester College in St. Paul, Minn.

The innovation on university campuses today attempts to address such concerns. Yet it also is accelerating the evolution of American higher education into what some experts say is a two-tiered entity: one system of exceptionally high quality for those with the means to pay and a second for those without.

Robert Zemsky and Susan Shaman of the University of Pennsylvania's Institute for Research on Higher Education found in a study of 1,200 institutions that colleges are sorting themselves into identifiable market segments. "Name-brand" schools provide small classes and well-paid faculty at high prices. A second, more market-savvy group offers convenience and user-friendliness--often catering to students who want quick, cheap degrees to advance their careers. But these schools spend much less on teaching and facilities.

Colleges that flourish, argue Zemsky and Shaman, among others, will be those that identify a viable segment of the school population and equip themselves to serve it effectively. This is a provocative concept, given that, for decades, big public universities and small private colleges alike have prospered through breadth, following the models put forth by Harvard University, the University of California, and other top schools. Now, "institutions that don't do well are those that don't develop a real signature in the market," Zemsky says.

Rensselaer Polytechnic Institute, which attracts top technical students across the U.S., fits the brand-name category. Like many smaller private schools, however, it must lure enough wealthy students who, by paying the full $27,000 tab, will subsidize poorer classmates. "We concluded we were never going to compete on price, so we had to produce an experience of demonstrably higher quality," says Jack M. Wilson, dean of the faculty.

CONVENIENCE. Its first-year "studio course," rooted in curricular and physical redesign, was meant to set RPI apart in the marketplace. In new multi-use rooms, built for $100,000 to $150,000 apiece, students face one way to hear a professor's short lecture, swivel around to work on lab equipment or personal-computer programs set up to complement the lesson, then turn again to work in small groups.

In an introductory class in circuits, Professor William C. Jennings begins with a short discourse on amplification. Then he turns his 30 students loose to wire and test the equipment behind them, roaming the room to give guidance as needed. Before last year, he lectured for an hour and a half, and students went elsewhere to experiment under a grad student. Students like the merger of two settings. "You don't really know what's going on until you do it yourself," says Melissa Postolowski.

RPI can't say yet if students in studios actually learn more; physics students in the new classes tested no higher than those in conventional lectures. But the consolidated design calls for fewer faculty, freeing professors to create new courses and contribute to revenue-generating projects that, with administrative cuts, have helped reduce the school's $25 million backlog of long-term maintenance and investments by more than half. More important, the changes have created a buzz, and campus visits by prospective applicants are up 49%.

Portland State University, alternatively, has positioned itself in the convenience sector by meeting head-on the new demographics of higher education. Traditionally the neglected stepsister of much larger and better-financed state universities, it saw state assistance slip to 49% of its total budget, from 65% in 1991. At the same time, attrition grew among its diverse collection of older, lower-income students, many of whom come ill-prepared academically.

Cuts of support staff and middle management saved $3.5 million a year. But PSU also sought to create academic coherence for students who most often had picked courses because they happened to meet at the right time. The answer was University Studies, a program developed with advice from local businesses that hinges on group work and technology. At its heart is Freshman Inquiry, a selection of interdisciplinary, yearlong courses that meet five days a week. Einstein's Universe, for instance, is taught by professors of physics, dance, and history. Students, required to work in groups, discover the theory of relativity but also read and write about the philosophical, historical, and artistic context of Europe in the 1930s. Graduate-student or upper-class mentors help to "model" freshmen who have never confronted serious homework or class participation.

For some, the curriculum was a shock. "I expected to be going to lectures and writing 10-page papers," says David Hall, a senior majoring in business and information systems. Faculty, too, had to change stripes, having to confront many students who had never read an entire book. "The attitude used to be that students either could cut it or couldn't," says Susan Hopp, director of student development. More than 80% of students who enrolled last spring in Freshman Inquiry returned for classes this fall--a record.

RPI and Portland State, both of which are among six schools recognized by the Pew Charitable Trust for innovative restructuring, are years ahead of most institutions. Many of their peers, by contrast, are just starting to come to terms with the monumental change they will need to survive and compete. In the public sector, especially, that confrontation is proving traumatic.

Florida's Lombardi, for one, still is smoothing out his plan's kinks. The university's "bank," whose funding model discourages large classes, initially penalized the college of business for TV teaching, even though TV students test as well as those in conventional classes. English professors worry that creative writing and other courses requiring very small classes will cost their department funding under a system that strictly measures faculty-student productivity.

RESENTMENT LINGERS. For now, Florida's faculty is giving Lombardi the benefit of the doubt. In other states, resistance has been fiercer. Faculty at the University of Maine forced Chancellor J. Michael Orenduff to resign in 1995 after he proposed a distinct, accredited institution for satellite-TV learning. Resentment lingers at the University of Illinois four years after reform that, using 25 productivity and performance measures, seeks to rationalize programs and reallocate the savings. Loyola University of Chicago President John J. Piderit sparked an outcry from professors recently by referring to students as "customers."

Such protest isn't baseless. Professors and administrators alike are justly concerned about financially motivated strategies that risk eroding quality or reducing education to a pro forma exercise in professional credentialing. Often, though, the angst appears to be a function more of uncertainty with the dramatically shifting terrain. Academics, typically trained at traditional research universities, aren't prepared, for example, to teach in interdisciplinary courses that cross old department lines.

Either way, they have little choice but to learn to deal with change, because new competition--unencumbered by tenure, departmental politics, or legislative oversight--is coming fast. The number of corporate "universities," formed by business to offer in-house job-related training, has jumped from 1,000 to 1,400 in five years. Former junk-bond king Michael R. Milken, along with Oracle Corp. CEO Lawrence J. Ellison, has invested $500 million in Knowledge Universe, a for-profit company aiming to capture a $10 billion slice of the education market, from toys to advanced degrees. Its joint venture with Tele-Communications Inc. could provide the backbone for cable-TV distribution of university classes.

Cable entrepreneur Glenn R. Jones has created College Connection, offering students Internet access to inexpensive degree programs from 13 institutions including his own, entirely electronic International University. College Connection, with 7,000 students, is growing at 30% a year, says Jones, whose Knowledge TV offers college courses to viewers around the world. This, he says, is a "cyber-university." "Your classroom can be your house, your trailer--anywhere you have a computer."

Indeed, much of the convenience segment has been spurred by technology. Using the Net or interactive TV, schools can reach vast numbers of students in many locations at once, with little or no investment in new bricks and mortar. All told, 1.3 million Americans are engaged in some sort of electronic higher education, says researcher InterEd Inc.

Does it work? While educators agree that such technology delivers courses to students who otherwise would go without, they worry that electronic coursework is often rudimentary, with little attempt to account for quality or effectiveness and scant opportunities for intimate contact with a professor.

CHEAP TICKET. Yet many students are prepared to sacrifice such experiences in return for a few quick rungs up the career ladder. The University of Phoenix understands this, perhaps better than any school. Its mother campus--basically, two modest office buildings--sits off a traffic circle opposite Phoenix Airport. There are no dormitories, no library stacks, no cafeteria, no labs, no gym. And no kids. The hundreds of students who stream into dozens of spartan meeting rooms each weekday evening for four-hour classes range in age from 23 to 60.

With 58 campuses in 12 states, Phoenix' enrollment, now 42,000, is growing 20% a year--even though it accepts only adults who work full-time and offers classes only at night or online. Students meet twice a week for six weeks per course and get credit for "life experience" toward bachelor's and master's degrees, mostly in business and information technology. Teaching faculty, entirely part-time and tenureless, come from industry and teach from a standardized script. Annual tuition averages $6,500.

It may be, as critics call it, McEducation. But students love it. "This way, I finish in the same time as I would if I'd quit my job," says Demario Walton, 24, a Motorola Inc. employee pursuing his MBA. Investors love it, too. Shares of Apollo Group Inc., the university's corporate parent, trade at 23 times their value in 1994. "We will be the first national university," says founder John G. Sperling, a raucous 76-year-old former Merchant Marine and union organizer (with a Cambridge University doctorate) whose stake in Apollo is worth $484 million. "We intend to operate in every major metropolitan area of the U.S."

Phoenix thrives so conspicuously because it acknowledges a profoundly changed higher-education market. It and the other new venues stand to win a big share of the surge in college enrollment expected over the next decade as Echo Boomers emerge from high school and as more adults seek continuing education. Many of these students, unable to afford the cost of a full-time program, will start college older, seeking part-time classes that fit into job schedules.

Colleges and universities must confront this new competition--and the changing demographics, economics, and technology behind it. And they must adapt rapidly. The great risk is that, having opened its doors to most comers, the huge, centuries-old system will shut people out--sending students instead to nimbler rivals. Milken, Jones, and Sperling will be happy to accommodate.

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